India. Q&A: Kalyan Ganguly, MD, United Breweries

United Breweries Ltd, with 53 per cent of the Indian beer market, has seen sound demand in the third quarter of the current financial year. Of the 230 million cases of beer sold in the country annually, 130 million cases are from UB. It is to introduce Heineken beer in the latter part of 2011. Kalyan Ganguly, managing director, discusses growth and challenges with Raghuvir Badrinath and Debasis Mohapatra. Edited excerpts: How is the beer industry doing in this time of hardening interest rates and high inflation? Doing well and we are doing better than the industry, with improvement in our market share. The strong trend of last year continues. Competition has come in, the market has stabilised and consumers’ spending is witnessing a northward trend. We (in UBL) have not only added market share in strong beer but also seen around five per cent addition to our present market share in other Kingfisher products. Is it volume growth or value growth in the third quarter? The company is growing in both. We have increased our profitability and Ebitda. What factors may spoil the party? The major concern of the company is the unabated inflation, which has its impact in raising the price of our key ingredients like sugar, malt and barley, among others. There will be pressure on the cost side due to such price rise. Inflation pressure will also be felt in our promotional activities. We are planning to increase our capacity to meet the increasing demand, which will also have similar impact. However, apart from the price rise in commodities, all other things are manageable. How do you intend to mitigate this cost pressure? As we have successfully tried in the past, we will try to improve our efficiency. We just cannot increase our prices to the end consumer, as the state governments have to take a call on that. How much will capacity go up in the current year? We are planning to put up new breweries in Nanjangud, Karnataka, along with one in Bihar. We will expand our existing capacity in Orissa, Kalyani, Aurangabad in Maharashtra (two units) and Hyderabad (three units) in the near future. With these planned capacities, our present capacity will go up to 16 million cases per month from 12.6 million cases in the current calendar (year). How much will you invest in this expansion? How will you fund it? Total investment will be around Rs 700 crore for these expansions. This funding will be done through a mix of debt and internal accruals. As our debt is at a comfortable level, we can leverage at any point of time. How do you see the demand for beer going ahead in the wake of an adverse macroeconomic environment? I don’t think there will be any dip in demand at this point. Our product is not that expensive and it caters to the young segment. With rising numbers of the educated young mass in India, along with sound GDP (growth) numbers, demand for our product should grow. Your closest competitor lost market share recently. Is the market plateauing? The industry is on a steady growth path. If any one loses share, it doesn’t mean the market is plateauing. It been more than an year since you formed a strategic pact with Heineken to brew their product in India. When will it happen? We expect to launch Heineken in the latter part of the year. Presently, we plan to brew this beer in our Mumbai brewery. However, we have to still import some of the raw material like barley for maintaining the quality. Our Mumbai brewery will be the focused one for brewing Heineken and we are moving our other beer brands to other breweries in Maharashtra as we prepare for Heineken. A pint of Heineken (bottled at origin) costs around Rs 160-175 in India.